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ACCA Strategic Professional · Advanced Financial Management · The role of the treasury function in multinationals

Which combination best describes how a cost centre treasury would typically handle a subsidiary's foreign currency exposure and internal charging?

A cost centre treasury hedges exposures in line with group policy and recharges subsidiaries at cost, without a profit margin. Adding margins to internal rates or keeping positions open to earn gains is the behaviour of a profit centre treasury.

  1. AHedge externally at best rate and add a margin to the internal rate to generate profit
  2. BHedge according to group policy and recharge subsidiaries at cost, without adding a profit marginCorrect
  3. CLeave exposures open to earn gains and report them as treasury income
  4. DTransfer all currency exposures to subsidiaries and charge them for advice only

Explanation

A cost centre recovers its actual costs and passes on the hedging result at the rate obtained, following policy. Adding margins or running open positions is characteristic of a profit centre.

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